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The age-old value vs. growth stocks argument misses the point. For a diversified portfolio, you need both. And right now, value stocks are outpacing their growthier brethren.

Value stocks are outperforming growth stocks right now.

That’s not a sentence that’s been uttered (or written) often over the past decade and a half. But for the past three months, it’s definitely true. Growth stocks – as measured by the Investors’ Business Daily 50 ETF (FFTY) – peaked in late October and are still 10% off their pre-Halloween apex. Value stocks – as measured by the Vanguard Value Index ETF (VTV) – have risen more than 4% during that time and have really come on since the calendar flipped to 2026, advancing nearly 3%.

The New Year is shaping up to be different from recent years. And market leadership is already changing.

The economy is transforming.

The positive effects of tax cuts and deregulation are starting to take effect. There are also significantly cheaper oil prices, lower interest rates, and the absence of much of the tariff uncertainty from last year. The chances are good that 2026 will feature the strongest economy of the bull market so far.

Most cyclical businesses benefit from a stronger economy. In fact, cyclical stocks have been the best performing market sectors for the past few months. Bank stocks in particular are in a great position because of cheap valuations, rising earnings, and a likely steepening yield curve.

Banks took it on the chin during inflation and rising rates. Although bank stocks have recovered from the loss, they are still near the same price level they were four years ago. The recovery should have further to go. In this issue, I highlight one of the country’s largest regional banks. The bank has rapidly growing earnings and the stock price has momentum.

Halfway through January and one of the big stories of the year is the continued outperformance of small-cap stocks. Along with the strength in the equal-weight S&P 500 (the Invesco S&P 500 EW ETF (RSP) is an easy option to track this), this is part of the “market is broadening out” theme that you’ve likely been hearing about.

As I stated several times in the waning months of last year, small caps benefit from (1) an early cycle backdrop, (2) stabilizing earnings revisions, (3) positive operating leverage, and (4) lower rates. These conditions are materializing right now. Analysts expect small-cap earnings to grow 15% in 2026, only slightly ahead of the 14.8% expected for large caps but a massive improvement from the small-cap earnings contractions in 2023 and 2024, and above the expected 2025 earnings growth rate of 13.4%. By the way, mid‑cap earnings are expected to grow by 19.3% in 2026. This is helping to draw more attention to the small and mid-cap (SMID) asset class, which is actually what a lot of small-cap ETFs and mutual funds really have exposure to.

Explorer stocks are off to a good start in 2026. Alibaba (BABA) shares soared 15.8% this week as it was reported that Alibaba Cloud has captured about 36% of China’s AI cloud market share. Archer Aviation (ACHR) shares followed last week’s 11.5% gain with a 5.8% gain this week as its CEO presented at Bank of America’s Defense and Commercial Aerospace Forum. Alphabet (GOOG) shares gained more than 4% this week as Apple (AAPL) announced that it had selected Gemini to power a more personalized version of its Siri chatbot. And Coeur Mining (CDE) shares were up 7.7% this week following last week’s 8% gain.

Now we look to a region that is in the headlines, performed well last year, and is likely to be at the center of attention this year.

So far, so good. On just the seventh trading day of the year, the S&P 500 is already about 2% higher. Early 2026 performance is indicative that stocks want to go higher.

A look under the hood tells an interesting story. Cyclical stocks are booming. The sectors are killing it so far in 2026 with materials, consumer discretionary, and industrials leading the pack, with stunning YTD returns of 6.78%, 5.82%, and 4.43% respectively. Investors are betting on a strong economy in the new year.

January has lived up to its billing so far, with lots of ups and downs among individual stocks and sectors based on a variety of news, rumors and, starting today, some Q4 pre-announcements linked to upcoming conference presentations. Even so, while the action is hectic, the underlying evidence is the same as it has been for the past few weeks: The intermediate-term trend of the major indexes is positive, not powerful, while for individual stocks and sectors, many are acting well, but it depends where you look. If we see a shift in the evidence, we’ll shift our stance, but until then, we’re leaving our Market Monitor at a level 7.

This week’s list is a potpourri of ideas from a variety of different areas that have come into favor this year. Our Top Pick is a solid growth story in the strong aerospace/defense area with big earnings coming. Shares boomed out of a base last week—try to enter on weakness.

WHAT TO DO NOW: While there’s been some modest improvement here and there, growth stocks continue to be unable to get going in any real way, with the Nasdaq stuck in the mud and our Aggression Index approaching multi-month lows. We already have a lot of cash, but today we’re pulling the plug on JFrog (FROG), which continues to have great fundamentals, but the stock (and the software sector overall) continues to sag. We’ll sell here and make sure a disappointing situation doesn’t get much worse.

*Please note, S&P 500 futures are indicated lower by 1.5% this morning on renewed tariff fears.

Coming off record highs early last week, U.S. equities drifted lower as the week progressed as the first week of the corporate earnings season unfolded. And despite upbeat earnings from select tech and semiconductor names, profit-taking set in across large caps late in the week and kept the major averages slightly underwater by Friday’s close. Small caps bucked the broader trend, continuing their early-year leadership as the Russell 2000 extended gains on optimism around economic resilience and rotation out of mega caps. For the week, the S&P 500 lost 0.4%, the Dow fell 0.3%, and the Nasdaq Composite declined by 0.7%.

*Please note, S&P 500 futures are indicated lower by 1.5% this morning on renewed tariff fears.

Coming off record highs early last week, U.S. equities drifted lower as the week progressed as the first week of the corporate earnings season unfolded. And despite upbeat earnings from select tech and semiconductor names, profit-taking set in across large caps late in the week and kept the major averages slightly underwater by Friday’s close. Small caps bucked the broader trend, continuing their early-year leadership as the Russell 2000 extended gains on optimism around economic resilience and rotation out of mega caps. For the week, the S&P 500 lost 0.4%, the Dow fell 0.3%, and the Nasdaq Composite declined by 0.7%.

Cyclical stocks and sectors are poised to outperform in the year ahead due to the underreported economic boom that could translate to the strongest economy since the bull market began.

The broadening market rally has been usurped by the return of tariffs, at least for now.

The market is unnerved to start this week after President Trump threatened the European Union (EU) with additional tariffs and the EU is threatening retaliatory measures. The issue caught investors by surprise and is threatening to derail the ascending market.

CEO Special Bulletin: Position Updates

Today, a whopping eight Profit Booster positions will expire. Most are “slam-dunk,” full-profit trades, while others will go down to the wire.

The big takeaway, before we dive in, is we are going to let the situation play itself out, and come Monday/Tuesday of next week we will revisit our profits, as well as how we will manage the remaining positions.

The market took a good-sized hit today, and we see the action as a shot across the bow and are remaining flexible. But as always, we’re going to go with what’s in front of us: Right here, many stocks remain in good shape, though clearly things are mixed, while some yellow flags have arisen. It’s imperative to stick with what’s working, aim for decent entry points and actively manage your portfolio (partial profits on the way up, raising stops, etc.). We’ll again stick with a level 7 on the Market Monitor, though the next few days should be telling.

This week’s list has a bigger growth mix, though as has been the case, there’s something for everyone here. Our Top Pick has shown outstanding power and ties into both AI and the recently strong defense and space trades. Try to buy on further weakness.

Growth-oriented retail stocks are often some of our favorite names due to their cookie-cutter business models. Here are a few we’re watching now.